Section by Section Summary of the 2013 HOME Final Rule: Subpart F - Project Requirements

§92.250 Maximum Per-Unit Subsidy Amount, Underwriting, and Subsidy Layering

Maximum Per-Unit Subsidy

§92.250(a) is revised to clarify that the maximum HOME per-unit subsidy may not be increased above 240 percent of the base limits authorized by §221(d)(3)(ii) of the National Housing Act [12 U.S.C. 17151(d)(3)(iii)]. Congress increased the maximum exceptions that HUD may grant for the 221(d)(3) mortgage insurance program to up to 315 percent of the base limits.  However, the HOME statute, which establishes the 221(d)(3) mortgage insurance limits as the per-unit cost limits for HOME-assisted units, was not amended. This continues to limit fthe HOME subsidy to the lesser of a PJ’s actual high cost percentage or to 240 percent of the base limit. (NOTE: These provisions will be the subject of an interim policy to be announced shortly and of future rulemaking, due to the discontinuance of the 221(d)(3) Mortgage Insurance Program.)

Suggested Next Steps for PJs

  1. Review the rental and homebuyer development program and homebuyer assistance (downpayment) program policies to determine the maximum per-unit subsidy in use.

  2. Determine the current maximum per-unit subsidy limits for the jurisdiction, at http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/affordablehousing/programs/programs/home/limits/subsidylimits.

  3. Update program policies and procedures such as underwriting and project application reviews as needed to reflect any changes to the PJ’s subsidy limits.

  4. Notify and instruct staff and program partners of any new limits in effect.

  5. Incorporate this requirement in monitoring checklists to ensure that compliance is verified during subrecipient monitoring reviews.

Effective Date

August 23, 2013

Underwriting and Subsidy Layering

The 2013 Rule amends §92.250(b) by requiring underwriting of all HOME projects (rental and homebuyer) whether or not the projects are assisted with other governmental assistance. The subsidy layering requirements of the pre-2013 Rule are unchanged. The PJ’s subsidy layering and/or underwriting must demonstrate that it is not investing any more HOME funds, alone or in combination with other funds, than are necessary to provide quality, affordable, and financially viable housing for at least the duration of the affordability period.  The evaluation must determine a reasonable level of profit or return on the owner’s or developer’s investment in a project.

§92.250(b)(1),(2), and (3) state that the PJ’s subsidy layering and underwriting guidelines must require the PJ to:

  • Establish standards to assess the reasonableness of profit or return to the owner or developer, for the size, type, and complexity of the project.

  • Examine the sources and uses for each project and determine whether the costs are reasonable.

  • Assess the market conditions of the neighborhood in which the project will be located.

  • Assess the experience and financial capacity of the developer.

  • Determine whether there are firm financial commitments for the project.

These requirements do not apply to all activities:

  • Applicability to homeowner rehabilitation programs. §92.250(b)(3) clarifies that the underwriting requirement does not apply to homeowner rehabilitation projects unless HOME funds are provided as an amortizing loan. Further, it exempts homeowner rehabilitation projects from the market analysis and developer capacity assessment.

  • Applicability to downpayment assistance. §92.250(b)(4) exempts projects that provide only downpayment assistance from the market analysis and developer capacity analysis requirements. (See §92.254 for new underwriting requirements when providing downpayment assistance.

Under the pre-2013 Rule, PJs were required to adopt subsidy layering guidelines and conduct a subsidy layering review only for projects with other public subsidies. These additional requirements represent an expansion of the PJ’s obligation to evaluate the financial soundness of a potential project, including the marketability of a project site, prior to making an investment of HOME funds.
HUD will issue guidance on these requirements.

Suggested Next Steps for PJs

  1. Review the current subsidy layering guidelines and any underwriting guidelines and standards the PJ (and State recipients or subrecipients) may have in place.

  2. Develop or revise subsidy layering and underwriting guidelines to address the required elements, listed above.

  3. Notify and instruct staff and program partners of the changes.

  4. Train staff in: (1) conducting underwriting (including assessing cost reasonableness and evaluating return to the developer); (2) reviewing market studies and marketing plans; (3) evaluating developer capacity.

  5. Incorporate these changes in project selection policies and solicitations for projects (i.e., Requests for Proposals).

  6. Incorporate the new requirements in the written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

  7. Incorporate these requirements in subrecipient monitoring checklists to ensure that compliance is verified during monitoring reviews.

  8. Look for additional HUD guidance in this area and amend policies and procedures as needed.

Effective Date

August 23, 2013

§92.251 Property Standards

The changes to §92.251 reorganize the presentation of the property standards requirements and clarify and update the standards. The reorganization is intended to minimize confusion about the applicability of the codes and standards across different housing activities. It creates separate requirements for projects involving:  

  • New construction [§92.251(a)]

  • Rehabilitation [§92.251(b)]

  • Acquisition of standard housing [§92.251(c)]

  • Housing occupied by tenants receiving HOME tenant-based rental assistance [§92.251(d)]

  • Manufactured housing [§92.251(e)]

  • Ongoing property standards for rental projects [§92.251(f)]

  • Inspection procedures [§92.251(g)]

Revisions to the property standards also address the codes cited in the pre-2013 HOME Rule that have been superseded and/or updated. The 2013 Rule provides additional specificity to the rehabilitation standards requirements in order to ensure that adequate improvements are made to support the long-term viability of HOME-funded rehabilitation projects. For new construction and rehabilitation, the 2013 Rule requires a higher degree of oversight by the PJ. It imposes requirements for the PJ to review and approve construction-related documents prior to construction, and to monitor construction progress.

New Construction Projects

§92.251(a)(1) requires new construction projects to meet State and local codes, ordinances, and zoning requirements. This requirement is not new. In the absence of an applicable State or local code for new construction, HOME-assisted projects must meet the International Code Council’s (ICC’s) International Residential Code or International Building Code, whichever is applicable to the type of housing being developed. In the pre-2013 Rule, PJs were directed to use one of the three national model codes, whose issuing groups merged to form the ICC. (These were the Building Officials and Code Administrators International, Inc.; International Conference of Building Officials; and Southern Building Code Congress International, Inc.)

§92.251(a)(2) incorporates or specifies additional standards:

  • Accessibility requirements as applicable, in accordance with Section 504 of the Rehabilitation Act, the Americans with Disabilities Act, and the Fair Housing Act. These requirements are not new.

  • Disaster mitigation standards, in accordance with State and local requirements or as established by HUD, where they are needed to mitigate the risk of potential disasters (such as earthquakes, hurricanes, flooding, and wildfires). This is a new requirement.

§92.251(a)(iv) and (v) adds requirements for PJs to improve project oversight for new construction. PJs must:

  • Review and approve written cost estimates, construction contracts, and construction documents.

  • Conduct construction progress and final inspections to ensure that work is done in accordance with the applicable codes, the construction contract, and construction documents.

Rehabilitation Projects

Written Rehabilitation Standards

§92.251(b)(1) requires PJs to establish and comply with written rehabilitation standards. The pre-2013 Rule required a written rehabilitation standard, but provided minimal regulatory guidance about what this standard needs to address. The 2013 Rule provides specificity about what elements are required in the PJ’s rehabilitation standards.

  • The rehabilitation standards must be of sufficient detail to determine the minimal level of work required and the methods and materials for rehabilitation work (either by referring to applicable codes or standards or establishing requirements that exceed the minimum code requirements).
  • The rehabilitation standards must address the following (the new requirements are so noted):
    • Health and safety. The rehabilitation standard must specify the life threatening deficiencies that must be addressed immediately if a housing unit is occupied. [NEW]

    • Major systems for rental housing. The PJ must require an estimate of the remaining useful life of major systems. [Major systems include structural support, roofing, cladding, and weatherproofing (e.g., windows, doors, siding, gutters), plumbing, electrical and heating, ventilation, and air conditioning.] This must be done with a capital needs assessment for projects with 26 or more units (see last bullet below). If the remaining useful life is less than the affordability period, the PJ must require replacement reserve deposits to ensure that the project’s major systems and physical needs can be adequately maintained and addressed throughout the affordability period. [NEW]

    • Major systems, for homeownership housing. The PJ must require that upon project completion, major systems must have a useful life of at least five years. [NEW]

    • Lead-based paint requirements, in accordance with 24 CFR part 35.

    • Accessibility requirements as applicable, in accordance with Section 504 of the Rehabilitation Act, the Americans with Disabilities Act, and the Fair Housing Act.

    • Disaster mitigation standards, in accordance with State and local requirements or as established by HUD, where they are needed to mitigate the risk of potential disasters (such as earthquakes, hurricanes, flooding, and wildfires). [NEW]

    • State and local codes, ordinances, and zoning requirements. In the absence of a State or local building code that applies to rehabilitation, the PJ must use the International Existing Building Code of the ICC. (This is not a new requirement, but the applicable code, absent State and local codes, has been updated.)

    • Uniform Physical Condition Standards (UPCS), in accordance with 24 CFR 5.703. UPCS is an inspection protocol that is used to evaluate the condition of housing. PJs must use this inspection protocol to establish minimum property condition standards for rehabilitation standards.  Note, in general UPCS includes a more comprehensive list of inspectable items and areas than Housing Quality Standards, which applied to rehabilitation in the absence of State and local codes in the pre-2013 Rule. [NEW]

      • Note: HUD will issue additional guidance on this requirement. This guidance will establish which critical deficiencies (based on the list of inspectable items and areas of UPCS) must be corrected as a minimum requirement for each type of rehabilitation — rental, homebuyer, and homeowner housing — and, therefore, must be included in the PJ’s rehabilitation standards.

    • Capital needs assessment for multifamily rental housing with 26 or more units, to ensure that the PJ determines all work that will be performed and identifies and addresses long-term physical needs of the project. [NEW]

For additional information on how written rehabilitation standards differ from property standards, see HOMEfires Vol. 3, No. 1, January 2001, which is posted on HUD’s website at https://archives.hud.gov/pubs/homefires/vol3no1.cfm.

Construction Documents and Work Write-ups

§92.251(b)(2) requires PJs to review and approve work write-ups (i.e., plans and specifications) and written cost estimates. The PJ must determine that the work write-up or plans are in compliance with the PJ’s written rehabilitation standards and that costs are reasonable. This provision clarifies this requirement. While these steps were not explicitly required in the pre-2013 Rule, compliance with the existing requirements already necessitated these kinds of review and approval.

Frequency of Inspections

§92.251(b)(3) explicitly requires the PJ to conduct: (1) an initial property inspection to determine deficiencies that must be addressed, (2) progress inspections to monitor construction progress, and (3) a final inspection to ensure that work is done in accordance with the project’s approved work write-up or plans. For these inspections, a PJ can either use qualified in-house staff or secure a qualified third party that is independent of the developer. This is a new requirement. HUD plans to provide additional training and guidance in this area.

Acquisition of Standard Housing Property Standards

When HOME funds are used to purchase existing rental housing, such housing must be in good condition or it must be rehabilitated to ensure that the housing is in standard condition at the time of project completion. In the pre-2013 Rule, for acquisition of property (without rehabilitation) HOME required that housing to be acquired in standard condition, must meet State and local housing property standards or codes, or in their absence, Housing Quality Standards. §92.251(c) of the 2013 Rule revises property standards for housing in standard condition that is acquired using HOME funds.

Newly Constructed or Recently Rehabilitated Housing

§92.251(c)(1) requires that housing that has been newly constructed or rehabilitated within one year of the date of commitment of HOME funds meet the applicable property standards [§92.251(a) for new construction and §92.251(b) for rehabilitation]. If the property does not meet the applicable standard, it cannot be acquired unless it is rehabilitated to meet the rehabilitation standards at §92.251(b). PJs must document this compliance based on a review of approved building plans and certificates of occupancy and a property inspection that is conducted no earlier than 90 days before the commitment of HOME funds. This provision differs somewhat from the pre-2013 Rule in which housing that was acquired (without rehabilitation) with HOME funds needed to meet State and local codes, or in their absence, Housing Quality Standards. However, documentation of compliance with these property standards was not prescribed, and inspections were not required.

All Other Existing Housing – Rental

For all other housing (that is, housing that is not recently rehabilitated or newly constructed) that will be acquired (without rehabilitation) for rental housing, the property must meet the applicable standard for rehabilitation at §92.251(b). The PJ must document compliance based upon a current inspection that is conducted no earlier than 90 days before the date of commitment of HOME assistance, in accordance with the PJ’s inspection procedures. If the property does not meet these standards, it cannot be acquired with HOME funds unless it is rehabilitated to meet this standard.

All Other Existing Housing - Homeownership (Downpayment) Assistance

The 2013 Rule states that the PJ must establish standards to ensure that existing housing that is acquired for homeownership (e.g., downpayment assistance) is decent, safe, sanitary, and in good repair. At a minimum, the standards must provide that the housing meets all applicable State and local housing quality standards and code requirements. In addition, the housing must be free of any deficiencies identified by HUD in the UPCS (pursuant to 24 CFR 5.705) based on the inspectable items and inspected areas in HUD-determined physical inspection procedures. If the housing does not meet these standards, the housing must be rehabilitated to meet the standards or it cannot be acquired with HOME funds. Note, HUD will issue guidance that specifies which components of UPCS will apply.

Tenant-Based Rental Assistance Property Standards

§92.251(d) requires that units occupied by households receiving HOME TBRA must meet the Housing Quality Standards at 24 CFR 982.401. This is not a new requirement.

Manufactured Housing Property Standards

The property standards for manufactured housing are now found at §92.251(e).  The 2013 Rule requires that newly constructed manufactured housing and housing that replaces an existing substandard unit (under the definition of “reconstruction”) must be on a permanent foundation. The definition of “permanent foundation” means a foundation system of supports that is capable of transferring all design loads to the ground and meets the requirements of 24 CFR 203.43f(c)(i). This definition is consistent with the FHA mortgage insurance requirements for all manufactured homes.

For all rehabilitated manufactured housing, the foundation and anchoring must meet all applicable State and local codes and other requirements. Foundation systems for existing units must be inspected and meet the applicable State or local codes, subject to the approval of the PJ’s building officials. In the absence of local or State codes, the PJ must use the Model Manufactured Home Installation Standards at 24 CFR part 3285.

The other property standards for manufactured housing are consistent with the pre-2013 requirements:

  • All new construction of manufactured housing (including reconstructed units that replace a substandard unit) must meet the Manufactured Home Construction and Safety Standards codified at 24 CFR part 3280.

  • All new manufactured housing (including units that are reconstructed) must, at the time of project completion, be connected to permanent utility hook-ups and be located on land that is owned (or leased for a period at least as long as the affordability period) by the manufactured housing unit owner.

  • Existing manufactured housing that is rehabilitated with HOME funds must meet the property standards applicable to rehabilitation, as outlined in §92.251(b).  The PJ must document this in its inspections procedures.

Suggested Next Steps for PJs

  1. HUD plans to issue guidance regarding how to incorporate UPCS into the property standards for rehabilitation and acquisition. Until guidance is issued, PJs can begin to update their property standards for new construction by reviewing their applicable State or local property standards for each housing activity type. If there are no State and/or local codes, update the required property standard for new construction to the applicable ICC, or IRC codes.

  2. Develop or review and amend procedures related to inspecting properties to ensure compliance with property standards.

    1. For new construction and rehabilitation, procedures must include:

      1. An initial property inspection to determine the extent of work to be completed, for rehabilitation projects

      2. PJ review and approval of project plans (work write-ups) and cost estimates

      3. Construction progress and final inspections to ensure that work is done in accordance with the applicable codes, the construction contract, and construction documents.

  3. Develop inspection checklists for new construction that reflect the applicable property standards to ensure consistency in implementation among staff and inspectors.

  4. Train staff and program partners in the new construction property standard requirements and the inspection procedures. Identify how staff qualifications will be determined for review and approval of construction documents, as well as inspection work.

  5. Incorporate these new requirements in the written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

  6. Incorporate these requirements in monitoring checklists to ensure that compliance is verified during project monitoring reviews.

  7. See §92.251(d) (below) and §92.504(d) related to project completion inspections and ongoing property inspections for additional guidance in these areas.

  8. Look for additional guidance from HUD on property standards for rehabilitation and acquisition, and update and revise policies and procedures as additional guidance is provided.

Effective Date

January 24, 2015 (The new property standards apply to projects to which funds are committed on or after this date, which is 18 months after publication of the Final Rule.)

Ongoing Property Standards during the Period of Affordability

The 2013 Rule revises the property standard requirements for rental housing during the period of affordability. The new §92.251(f) establishes several new requirements related to ongoing property standards and inspection procedures.

Ongoing Property Standards

The 2013 Rule, at §92.251(f)(1), requires PJs to establish ongoing property standards for rental housing that will apply throughout the affordability period. The PJ’s ongoing property standards must be in sufficient detail to establish the basis for a uniform inspection of projects. At a minimum, these standards must ensure that the housing is maintained as decent, safe, and sanitary housing in good repair.

The PJ’s ongoing property standards, at a minimum, must state that:

  • Properties must be maintained to meet all applicable State and local codes, if available. This is not a new requirement. However, the 2013 Rule has replaced Housing Quality Standards with UCPS as the standard in the absence of State or local codes (as discussed above under property standards).

  • Housing must be free of all health and safety defects and the PJ must identify life-threatening deficiencies that the owner must correct immediately. [NEW]

  • Housing must meet the lead-based paint requirements in 24 CFR part 35.

Procedures

The PJ is required to establish procedures for inspection and implementation of these requirements. These requirements are all new:

  • The PJ must have procedures in place to ensure that the property owner addresses deficiencies in a timely manner.

  • The PJ must establish written inspection standards that include detailed inspection checklists, a description of how and by whom inspections will be carried out, and procedures for training and certifying inspectors.

  • The PJ must conduct periodic property inspections in accordance with §92.504(d). The PJ’s inspection procedures must state how frequently each property will be inspected, consistent with §92.504(d) and, for TBRA units, §92.209. The requirement for a periodic inspection is not new, but the minimum required inspection schedule has been amended; every TBRA units must be inspected annually, and every HOME-assisted rental project must be inspected at least once every three years during the affordability period. [See §92.504(d) for a more detailed discussion of these inspection requirements.]

Suggested Next Steps for PJs

  1. Ascertain which State or local property codes apply to HOME-assisted rental housing during its affordability period. In the absence of State or local codes, follow the existing regulation until HUD issues guidance on how to implement UPCS for ongoing property standards.

  2. See §92.504(d) related to project completion inspections and ongoing property inspections.

  3. Look for additional guidance in this area from HUD and update and revise policies and procedures as additional guidance is provided.

Effective Date

§92.251 is effective as of January 24, 2015, and applies to projects to which HOME funds are committed after this date (which is 18 months after publication of the Final Rule). The changes to §92.504(d) related to property inspections, such as frequency of inspections and sampling, are effective July 24, 2014 (12 months after publication of the Final Rule). For existing HOME-assisted rental projects and for projects to which funds are committed before the Effective Date of the new ongoing property standards, the inspections should be based on the standards that were in effect at the time the HOME funds were committed. (In other words, the new ongoing property inspection requirements must be implemented by July 24, 2014 but until the new property standards in §92.251 are in effect on January 24, 2015, PJs will use their existing property standards.)

§92.252 Qualification as Affordable Housing: Rental Housing

A number of new requirements and clarifications have been made to this section.

Initial Occupancy of Vacant Units

The introductory paragraph to §92.252 is revised to adopt two deadlines within which HOME-assisted rental housing must be occupied by low-income households:

  • Within six months from the date of project completion, if a rental unit remains unoccupied, the PJ must provide to HUD information about current marketing efforts and, if appropriate, an enhanced plan for marketing the unit so that it is leased as quickly as possible.

  • Within 18 months from the date of project completion, if efforts to market the unit are unsuccessful and the unit is not occupied by an eligible tenant, HUD will require repayment of all HOME funds invested in the unit.  A unit that has not served a low- or very low-income household has not met the purposes of the HOME program. Therefore, the costs associated with the unit are ineligible.  

In the pre-2013 Rule, rental housing was required to be occupied by low-income households in order to be considered HOME-assisted affordable housing; however no deadlines were associated with this requirement. The six-month marketing review and the 18-month deadline that triggers repayment of funds for vacant units are new requirements.

Suggested Next Steps for PJs

  1. Revise rental program policies and procedures to incorporate these new requirements.

  2. Develop tracking procedures to identify vacant units prior to the six-month and 18-month deadlines and notify owners of the need to take action.

  3. Track compliance with the deadline using the “Vacant Units Reports,” available online at https://www.hudexchange.info/programs/home/home-pjs-vacant-unit-reports/

    1. Before committing funds, evaluate the market demand for the proposed housing and review the developer’s marketing strategy to evaluate the likelihood that rental housing units will be able to be rented and occupied within these new deadlines.

    2. For projects with remaining vacancies at six months, work with the developer to evaluate marketing efforts and enhance the strategies in an effort to identify qualified tenant(s).

    3. If units remain vacant at 18 months, follow repayment procedures.

  4. Notify staff and program partners of this new requirement.

  5. Incorporate these new requirements in written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

  6. Incorporate these requirements in project monitoring checklists to ensure that compliance is verified during monitoring reviews.

  7. Look for additional HUD guidance in this area, and make changes to program policies and procedures as needed.

Effective Date

August 23, 2013

Leases Required for Rental Units

A sentence is added to §92.252 to make explicit that leases are required for all HOME-assisted rental units, consistent with §92.209(g). This is a clarification of existing policy.

Suggested Next Steps for PJs:

  1. Review rental development and tenant-based rental assistance program policies to ensure that written leases are required in all HOME-assisted housing.

  2. Clarify this requirement with staff and program partners.

  3. Notify owners of HOME-assisted rental projects that leases are required, and inform owners of prohibited lease provisions. Establish deadlines by which all lessees in HOME-assisted units have executed leases.

  4. Incorporate this requirement in written agreements with State recipients; subrecipients; and owners, developers, and sponsors, as required by §92.504(c).

  5. Amend monitoring materials so that monitors verify compliance with this requirement in on-site project monitoring visits.

  6. See §92.253(a) and (b) for additional lease requirements.

Effective Date

August 23, 2013

Additional Clarifications of Existing Policies

Several revisions are made to §92.252(a) and (b) that clarify or codify existing requirements.

  • The 2013 Rule clearly states that rent limits include both the rent and utilities (or the utility allowance).

  • §92.252(a) and (b) incorporate the terminology of “High HOME rent” (i.e., “maximum HOME rent”) and “Low HOME rent” (i.e., “additional requirements”). These terms are commonly used by HUD, PJs, and other HOME program participants including owners, developers, and property managers.

  • The 2013 Rule clearly states that the PJ may designate more than the required minimum number of units (i.e., 20 percent of HOME units in projects with five or more HOME units) as Low HOME rent units.

Suggested Next Steps for PJs

  1. Review and revise existing rental program policies and procedures to ensure that the PJ is in compliance with these requirements.

Effective Date

August 23, 2013

Single Room Occupancy (SRO) Unit Rents

The 2013 Rule redesignates paragraph §92.252(c) to address the rent limits imposed on SRO housing. These requirements codify long-established administrative guidance setting the applicable rent limits for SRO units, as are conveyed in HUD Notice CPD 94-01, Using HOME Funds for Single Room Occupancy (SRO) and Group Housing, issued January 1994.

Rent limits for SRO units with no sanitary or food preparation facilities, or only one of the two:

  • The maximum rent that can be charged for a SRO unit is 75 percent of a zero-bedroom fair market rent (FMR). There are no Low HOME rent limits established for these SRO projects. However, in SRO projects with five or more HOME-assisted units, at least 20 percent of the units must be occupied by very low-income households. If a unit in a SRO project has a project-based voucher and the occupant is very low-income, the project-based voucher rent may be charged in accordance with the HOME Low HOME rent requirements in §92.252(b)(2).

Rent limits for SRO units that have both sanitary and food preparation facilities

  • The High HOME rent limit is set at the lesser of the FMR or the HUD-issued High HOME rent for the area, for a 0-bedroom unit.

  • The Low HOME rent limit is set at the lesser of the HOME-issued Low HOME rent limit, 30 percent of the monthly adjusted income for a very low-income family, or the FMR for a 0-bedroom unit. If a unit in a SRO project has a project-based voucher and the occupant is very low-income, the project-based voucher rent may be charged in accordance with the HOME Low HOME rent requirements in §92.252(b)(2).

  • In projects with five or more HOME-assisted units, at least 20 percent of the units must be occupied by very low-income tenants who pay no more than the Low HOME rent.

Suggested Next Steps for PJs

  1. Review and revise existing rental program policies and procedures to ensure compliance with these requirements.

Effective Date

August 23, 2013

Utility Allowances

PJs are required to establish monthly allowances for utilities and services (excluding telephone) and to update them annually.

A new provision at §92.252(d) requires the PJ to determine an individual utility allowance for each HOME rental project, either (1) by using the HUD Utility Schedule Model, or (2) by otherwise determining the allowance based upon the specific utilities used at the project.

The HUD Utility Schedule Model was developed by HUD and enables the user to calculate utility schedules by housing type after inputting utility rate information. The IRS uses this model to determine utilities for the LIHTC program. The model can be found at: http://huduser.org/portal/resources/utilmodel.html.

Under the pre-2013 Rule, PJs were required to adopt utility allowances, either by developing their own utility allowances, adopting the utility allowance of the public housing authority, or establishing project-specific allowances. PJs are no longer permitted to use a single utility allowance (such as that established by the local PHA) for every HOME-assisted rental project. This is because as more projects are constructed or rehabilitated to higher energy-efficiency standards, the use of a standard utility allowance that may not represent actual utility costs and is difficult to justify.

Suggested Next Steps for PJs

  1. Revise existing rental program policies and procedures to adopt new utility allowance determination procedures.

  2. Train staff on how to use the HUD Utility Schedule Model.

  3. Notify program partners and owners of HOME-assisted rental projects of this change.

  4. Incorporate this new requirement in written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

Effective Date

August 23, 2013

Nondiscrimination for Rental Assistance Subsidy Holders

The provision prohibiting discrimination against rental assistance subsidy holders previously found at §92.252(d) has been moved to §92.253(d)(4). There is no substantive change to the existing requirement.

Suggested Next Steps for PJs

None needed, provided the PJ is in compliance with this requirement.

Effective Date

August 23, 2013

Periods of Affordability and Repayment Obligation

Several revisions were made to §92.252(e).

  • Repayment obligation. §92.252(e)(1)(i) and §92.252(e)(4) have been revised to expressly state that the termination of affordability restrictions does not relieve a PJ of its repayment obligation for housing that does not remain affordable for the required period under §92.503(b).

  • Mechanisms to secure affordability. §92.252(e)(1)(ii) is amended to permit PJs to use agreements restricting the use of the property to secure affordability restrictions. PJs continue to have the option to use deed restrictions or covenants running with the land, as required in the pre-2013 Rule.

  • Recordation. In order to be effective, the mechanisms to secure affordability restrictions must be recorded in accordance with State recordation laws. The pre-2013 did not expressly state this requirement.

Suggested Next Steps for PJs

  1. Consult with legal advisor about whether there are advantages to using a use restriction to enforce affordability in the jurisdiction. If so, make changes accordingly.

  2. Review existing policies and procedures for rental housing programs and be sure that deed restrictions, covenants running with the land, and use restrictions are recorded.

    1. If not, amend procedures to ensure that documents are submitted for recordation and evidence of recordation is inserted in the project file.

    2. Assign this specific responsibility to a PJ staff person to ensure that it is carried out.

Effective Date

August 23, 2013

Rent Review and Approval during the Affordability Period

The 2013 Rule amends §92.252(f)(2) to require that a PJ must review and approve the rents for each HOME-assisted rental project each year to ensure that they comply with the HOME limits and do not result in undue increases from the previous year. In the pre-2013 Rule, PJs were required to approve initial rents, then provide the published maximum HOME rents to project owners, and examine reports submitted by owners that report the rents and occupancy data of all HOME-assisted units on an annual basis. The new requirement ensures that PJs expressly examine and approve the rents for each project annually.

Suggested Next Steps for PJs

  1. Revise existing rental program policies and procedures to ensure that this new requirement is incorporated.

  2. Notify staff and owners, developers, and sponsors of HOME-assisted rental housing of this new requirement.

  3. Incorporate this new requirement in the written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

  4. Notify monitoring staff of this change and incorporate this requirement into monitoring procedures for rental projects during the ongoing affordability period.

Effective Date

August 23, 2013

Fixed and Floating Units

§92.252(j) requires PJs to specifically state in their written agreements with owners whether HOME units are fixed or floating. This is consistent with the pre-2013 requirement that the fixed or floating determination be made at the time of project commitment. The 2013 Rule further clarifies that the determination about which specific units are HOME-assisted or non-assisted units must be made no later than the time of initial occupancy.

The 2013 Rule does not change the definitions of fixed or floating units, and does not make changes to the requirements that the project’s unit mix must be maintained throughout the affordability period.

Suggested Next Steps for PJs

  1. Review and revise existing rental program policies and procedures to ensure that these two steps are incorporated into the process: (1) the designation of the fixed or floating HOME units in a rental project is made and documented in the written agreement with the project owner(s), and (2) the designation of assisted and non-assisted units is made by initial occupancy.

  2. Incorporate the designation of fixed or floating HOME units in the written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

Effective Date

August 23, 2013

Cross-References to Other Requirements for Rental Housing

§92.252(k) cross-references and incorporates the tenant selection requirements located in §92.253(d) to clarify that these requirements apply to tenants of HOME-assisted rental housing. This is not a new requirement.

§92.252(l) incorporates the PJ’s ongoing responsibilities for on-site inspections and financial oversight of rental projects located in §92.504(d). Under the pre-2013 Rule, PJs had inspection responsibilities, but the specific inspection requirements have been revised. The PJs’ obligation to oversee the financial viability of a project during the period of affordability is new.

Suggested Next Steps for PJs

  1. Refer to “Suggested Next Steps for PJs” for the cross-referenced citations at §92.253(d) and §92.504(d).

Effective Date

August 23, 2013

§92.253 Tenant Protections and Selection

Lease Requirements

§92.253(a) is revised to require that in all HOME- assisted rental housing, as well as in units occupied by recipients of HOME TBRA, there must be a written lease between the tenant and the owner of the rental housing. The lease term must be for a period of at least one year, unless a shorter period is mutually agreed upon. The lease requirement is based in the HOME statute and is not new; the Rule clarifies this requirement because it was sometimes misunderstood.

Prohibited Lease Terms: Mandatory Supportive Services

A new paragraph §92.253(b)(9) is added to prohibit lease terms that require tenants to accept supportive services (with an exception for residents of transitional housing). This clarification is consistent with Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), which prohibits discrimination on the basis of disability in federally funded programs and activities and HUD’s implementing regulations at 24 CFR part 8. The additional prohibited lease terms of the pre-2013 Rule are retained without revision.

Termination of Tenancy

Generally, the provisions of §92.253(c) remain unchanged. Owners may only refuse to renew or terminate the lease of a tenant residing in a HOME-assisted unit, if there is good cause. Good cause is defined as: repeated violation of lease terms; violations of federal, State or local law; or for completion of the tenancy period for transitional housing. The 2013 Rule makes two revisions:

  • A new provision specifies that a tenant’s failure to participate in any required supportive services of transitional housing is a permissible basis for terminating a tenancy or refusing to renew a lease. This provision ensures that transitional housing can be made available to individuals who use the transitional housing for its intended purpose.

  • The 2013 Rule expressly states that an increase in a tenant’s income does not constitute good cause for termination of, or refusal to renew, a lease. Terminating the occupancy of a tenant whose income increases could result in creating a disincentive for tenants to increase their incomes, in fear that they could lose their housing. This was never the intended HOME program policy and this new provision clarifies this point.

The requirement of 30-day written notice to the tenant in the event of lease termination or non-renewal remains unchanged.

Suggested Next Steps for PJs

  1. Review and revise existing rental program and tenant-based rental assistance policies and procedures to ensure that they reflect these requirements:

    1. There must be written leases.

    2. Leases must be for one year unless otherwise mutually agreed between the tenant and the project owner/landlord.

    3. Prohibited lease clauses should be specified, and should be updated to prohibit owners and landlords from requiring tenants to accept supportive services (with an exception for residents of transitional housing).

    4. Termination or nonrenewal of leases may occur for good cause only and good cause does not include nonparticipation in supportive services (unless it is transitional housing) or tenant increases in income.

  2. Incorporate these new requirements in written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, as required by §92.504(c).

Effective Date

August 23, 2013

Tenant Protections and Selection

The most significant revision to the tenant selection requirements is the addition of §92.253(d)(3), that provides that the owner’s tenant selection policies must comply with requirements governing how and when HOME funds may be used for special needs populations. The new regulatory provisions also permit the owner of HOME-assisted rental housing to limit eligibility or give a preference to a particular segment of the population only if the PJ permits this in its written agreement.

§92.253(d)(3)(i) provides that, while a limitation or preference is permitted, it must not violate nondiscrimination requirements listed in §92.350. The paragraph clarifies that if HOME-assisted housing also receives funding from a federal program that limits eligibility to a particular segment of the population, then that limitation is not in violation of the nondiscrimination requirements. Examples of such federal programs include the Housing Opportunity for Persons with AIDS program, HUD’s homeless programs, HUD’s Section 202 supportive housing for the elderly, and HUD’s Section 811 housing for persons with disabilities.

§92.253(d)(3)(ii) provides that preferences may be given to disabled families who need services offered at a project, if certain conditions are met: (1) the preference must be limited to the population of families (including individuals) with disabilities whose disabilities significantly interfere with their ability to obtain and maintain housing; (2) such families are not be able to obtain and maintain themselves in housing without appropriate supportive services; and (3) such services cannot be provided in a nonsegregated setting.

While this provision in the Rule is new, it reflects current HUD policy on this issue. Generally, separate or different housing or services for individuals with disabilities are not permitted. However, 24 CFR 8.4 permits different or separate housing, aid, benefits, or services to individuals with disabilities (or to any class of individuals with disabilities) from that provided to others in extremely limited circumstances: that is, when necessary to provide qualified individuals with disabilities with housing, aid, benefits, or services that are as effective as those provided to others. Even when separate housing or services are permitted, individuals with disabilities cannot be denied the opportunity to participate in programs that are not separate or different.

Suggested Next Steps for PJs

  1. If pursuing a policy to target housing and/or services to persons with disabilities, review and revise existing rental development and tenant-based rental assistance program policies and procedures to ensure that they reflect the new requirements described above. The policies and procedures should answer the following questions:

    1. Who is the targeted population?

    2. Does the proposed project meet the standard that it provides qualified individuals with disabilities with housing, aid, benefits, or services that are as effective as those provided to others?

    3. How will an applicant’s eligibility as a member of this population be determined?

    4. What services will be provided to support the tenants with disabilities and how will these be provided?

  2. Specifically state that the housing will be targeted to the special population in the written agreement with owners, developers, or sponsors, in accordance with §92.504(c)(3).

Effective Date

August 23, 2013

Other Tenant Selection Requirements

Several additional changes are made to §92.253(d) that clarify existing requirements.

  • §92.253(d) references the affirmative marketing requirements of §92.351(a) and clarifies that owners must comply with these requirements and expressly states that owners are expected to adopt and follow tenant selection policies and criteria.

  • §92.253(d)(1) and (2) are revised for clarity and specificity. §92.253(d)(1) specifies that tenant selection criteria must limit occupancy in HOME-assisted rental housing to income-eligible (low- and very low-income) families. §92.253(d)(2) specifies that tenant selection criteria must be reasonably related to program eligibility and the applicant’s ability to meet the obligations of the lease. This refers to the applicant’s ability to pay rent, to maintain the unit in reasonable condition, and not to interfere with the rights of other tenants.

  • The provision prohibiting discrimination against rental assistance subsidy holders has been moved from §92.252(d) in the pre-2013 Rule to §92.253(d)(4). No change has been made to the requirement.

The requirements that the tenant selection criteria provide for a written waiting list, and give written notification to rejected tenants are renumbered, but otherwise unchanged. These are now found at §92.253(d)(5) and (6), respectively.

Suggested Next Steps for PJs

  1. Review rental housing development and tenant-based rental assistance program policies and procedures to determine if these requirements are clear in current documentation.

    1. If not, revise policies and procedures accordingly.

  2. If the PJ provides written guidance to project owners, developers, and sponsors about how to develop tenant selection procedures and what HOME requirements apply to tenant selection procedures, revise this guidance.

  3. For project owners, developers, and sponsors working with the PJ for the first time, or using new property management staff/entity for the first time, consider requiring PJ review and approval of tenant selection procedures to confirm compliance.

  4. Notify staff and project owners, developers, and sponsors of these clarifications.

  5. When applicable, specifically state that the housing will be targeted to the special population in written agreement with owner, developer, or sponsor.

  6. Notify monitoring staff of these clarifications and incorporate these requirements into project monitoring checklists for compliance reviews.

Effective Date

August 23, 2013

§92.254 Qualification as Affordable Housing: Homeownership

New Purchase Price Limits

§92.254(a)(2)(iii) is revised so that PJs are no longer permitted to use the FHA Single Family Mortgage Limit [known as the 203(b) limit] as a surrogate for 95 percent of area median purchase price, as was permitted in the pre-2013 Rule. This change was necessitated by statutory changes to the 203(b) statute, which, over time, increased the FHA Section 203(b) floor. With these increases, the Section 203(b) limits became a less reliable surrogate for 95 percent of area median purchase price. The HOME program statute requires that no housing have a purchase price or after-rehabilitation value that exceeds 95 percent of area median purchase price, in order to ensure that HOME-assisted housing is modest and non-luxury.

In the 2013 Rule, §92.254(a)(2)(iii) is amended to eliminate the use of the 203(b) limit and to change the methods for determining 95 percent of area median purchase price. HUD will determine and issue limits that represent 95 percent of the area median purchase price separately for newly constructed and existing single family housing units.

  • HUD-determined limits for newly constructed single family housing units to be developed or acquired with HOME funds, will be based on 95 percent of the median purchase price for the area using FHA single family mortgage program data for newly constructed housing. PJs can use the greater of this limit or 95 percent of the statewide nonmetropolitan area median purchase price for newly constructed housing, which will also be provided by HUD.

  • HUD-determined limits for existing single family housing units being acquired and/or rehabilitated with HOME funds, will be based on 95 percent of the median purchase price of existing housing in the area using data from the FHA single family mortgage program data for existing housing and other appropriate data that are available nationwide for sales of existing housing. PJs can use the greater of this limit or 95 percent of the statewide nonmetropolitan area purchase price using this data, which will also be provided by HUD.

PJs also continue to have the option to determine the actual 95 percent of area median value limit for their jurisdiction using the methodology in the regulation [at §92.254(a)(2)(iii)], which remains unchanged.

Suggested Next Steps for PJs

  1. Review the homebuyer development program, homebuyer assistance (downpayment) program, and homeowner rehabilitation program policies and procedures to determine the current sales price / after-rehabilitation limits in effect.

  2. Go to the HOME program website to determine the applicable sales price / after-rehabilitation values for the jurisdiction, at http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/affordablehousing/programs/programs/home/limits/maxprice

  3. Notify and instruct staff and program partners of any new limits in effect.

  4. Determine whether the PJ will use the HUD-issued limits, or if it will determine its own limits. [If the latter, adopt the methodology outlined in the HOME Rule at §92.254(a)(2)(iii).]

  5. Incorporate this requirement in monitoring checklists to ensure that compliance is verified during subrecipient and project monitoring reviews.

Effective Date

August 23, 2013

Conversion of Unsold Homeownership Units to Rental Housing

§92.254(a)(3) imposes a new requirement that PJs must convert homebuyer housing to rental housing if it does not have a ratified sales contract with an eligible homebuyer within nine months of the completion of construction or rehabilitation. If converted, this rental housing must comply with all provisions of §92.252. If an unsold homebuyer unit is not converted to rental housing, the PJ must repay the HOME funds expended on it.

This new requirement is meant to address the concern that some markets cannot support a homeownership program or absorb units that were meant to address a perceived need but upon completion, there are no eligible buyers to purchase the units. This might be the result of a number of things, such as changes in the market demand during the development process, or invalid assumptions about marketability. The aim of the requirement is to prevent newly developed and decent housing units from sitting vacant.

Suggested Next Steps for PJs

  1. Revise homebuyer development program policies and procedures to reflect this requirement.

  2. In the project review and selection process, review the market study and the developer’s marketing strategy carefully to ensure that the homebuyer project is marketable and there is market demand for for-sale units in the target neighborhood.

  3. Carefully track housing units against this deadline using the “HOME Homebuyer Activities Report” available online at http://www.hud.gov/offices/cpd/affordablehousing/reports/#buy.

  4. Work with rental housing entities to develop a process for identifying potential tenants and/or transferring ownership to an entity able to manage single family rental units, in the event a homebuyer unit must be converted.

  5. Notify staff and project owners, developers, and sponsors of this requirement.

  6. Consider incorporating a provision in written agreements with project owners, developers, and sponsors to impose the risk of repayment with these entities if the project remains vacant.

  7. Notify monitoring staff of these clarifications and incorporate these requirements into monitoring checklists for compliance reviews.

Effective Date

August 23, 2013 (This requirement applies to projects to which HOME funds are committed on or after this date. It does not affect units that are already built or under construction. HOME homebuyer projects funded with FY 2012 and FY 2013 HOME funds will be subject to the more stringent provisions of Public Law 112-55, Consolidated and Further Continuing Appropriations Act, 2012, which established a 6-month period for selling HOME homebuyer units or converting them to rental.)

Income of All Persons Residing in the Housing

§92.254(a)(3) and §92.254(b)(2) are revised to specify that to the extent a person’s income “counts” in accordance with the definition of income the PJ has adopted, the income of all persons residing in the HOME-assisted housing must be included when determining the income of a family applying for homebuyer or homeowner rehabilitation assistance. This clarification is intended to address situations where not all household members are related, or where several adult members will reside in a HOME-assisted unit. It is not intended to supersede the income determination requirements of the definition the PJ has adopted. For instance, if the PJ adopts the Part 5 definition of income, then the earned income of a minor is not included in the determination of income, even though the minor will reside in the housing unit. This codifies existing HUD policy.

Suggested Next Steps for PJs

  1. Review homebuyer development and homeowner rehabilitation program policies and procedures to be sure that this requirement is clear.

  2. Revise any related application forms to be sure these requirements are clear to the applicant reporting the household income.

  3. Notify monitoring staff of these clarifications and incorporate these requirements into project monitoring checklists for compliance reviews.

  4. Communicate these requirements to State recipients, subrecipients, and other partners tasked with determining income eligibility. Incorporate these new requirements into written agreements with these partners.

Effective Date

August 23, 2013

Housing Counseling

§92.254(a)(3) imposes a new requirement that all homebuyers that receive HOME assistance or purchase a unit developed with HOME funds receive housing counseling.

§92.206(d)(6), §92.207(b), and §92.214(b)(1)(iii) are revised to make clear that homebuyers may be charged reasonable fees to cover the cost of housing counseling. The HOME statute prohibits PJs from using HOME funds for a homebuyer counseling program. However, the counseling costs of a homebuyer that is assisted with HOME funds (through downpayment assistance) or that purchases a HOME-assisted unit can be charged as eligible project costs. As project costs, these must be included in the maximum per-unit subsidy limit. When housing counseling is provided to a homebuyer that is not assisted with HOME funds, these costs can be charged as administrative costs, and as such are subject to the ten percent administrative cost cap.

Suggested Next Steps for PJs

  1. Revise homebuyer development program and homebuyer assistance (downpayment assistance) program policies and procedures to incorporate the new requirement for homebuyer counseling.

  2. Make decisions about:

    1. What level (amount) of housing counseling will be required?

    2. Who will provide the counseling (e.g., PJ, subrecipient, developer), what qualifications will counselors need, and how will they be identified?

    3. How will the housing counseling be funded (through fees to homebuyers or public subsidy)?

  3. Revise any related application forms to be sure these requirements are clear to the applicant.

  4. Notify monitoring staff of these clarifications and incorporate these requirements into subrecipient and project monitoring checklists for compliance reviews.

Effective Date

August 23, 2013 (This means that any buyer that enters into a written agreement for HOME assistance or a sales contract for the purchase of a HOME-assisted unit after August 23, 2013 must receive housing counseling. Note that changes to §92.254(f) require PJs to develop and adopt homebuyer program policies, including written policies related to underwriting, responsible lending, and refinancing, by January 24, 2014.)

HUD Approval of Resale and Recapture Provisions

§92.254(a)(5) is revised to require PJs to obtain HUD’s specific and written approval of its resale and/or recapture requirements. PJs shall continue to follow the pre-2013 Rule procedures to submit their resale and recapture provisions for HUD approval as part of their consolidated plan or annual action plan. However, rather than provide implicit approval as part of the consolidated plan or annual action plan approval, this amendment requires HUD to issue separate, written approval of these provisions. PJs must provide sufficient detail to enable HUD to assess their appropriateness. It is a statutory requirement that HUD approves a PJ’s resale or recapture provisions.

Suggested Next Steps for PJs

  1. Review existing resale and recapture provisions, including the clarifications of the requirements in the following paragraphs, and determine whether they sufficiently meet the requirements of the HOME program.
    1. If no, revise accordingly.
  2. Submit resale and/or recapture provisions to HUD for review and approval, as part of the consolidated planning review and approval process.

Effective Date

August 23, 2013

Resale Restrictions: Fair Return and Affordability to a Reasonable Range of Low-income Homebuyers

For PJs adopting resale restrictions in their homebuyer programs, §92.254(a)(5)(i) is amended to require them to define “fair return on investment” and “affordability to a reasonable range of low-income buyers,” in their restrictions. The PJ must also address how it will make the housing affordable if the resale price that is needed for a fair return on investment is too high to be within the affordable range.

In order to meet the statutory and regulatory requirements of the resale restriction, these terms must be defined. Historically, however, many PJs have not defined these terms in sufficient detail to ensure compliance. This new requirement will improve PJs’ ability to design resale requirements that are understandable to potential homebuyers and reflect the local housing market.

Other key requirements related to resale restrictions remain unchanged:

  • Resale restrictions must be imposed at the time that the HOME-assisted purchase takes place, and secured through deed restrictions, covenants running with the land, or other similar mechanisms.

  • Restrictions may terminate upon foreclosure, transfer in lieu of foreclosure, and assignment of FHA mortgage, in order to clear title. This does not eliminate the PJ’s obligation to provide affordable housing throughout the affordability period; failure to do so results in the PJ’s repayment of HOME funds to its Trust Account.

  • PJs may use purchase rights and other legal mechanisms to purchase HOME-assisted housing before foreclosure.

  • PJs can make a “presumption of affordability,” through the analysis process described in the regulation at §92.254(a)(5)(i)(B), rather than impose resale restrictions.

Suggested Next Steps for PJs

  1. Review existing resale restrictions, and determine whether they sufficiently define “fair return on investment” and “affordability to a reasonable range of low-income buyers,” as described and whether they meet the other key requirements listed above.
    1. Notify staff, State recipients, subrecipients, contractors, project developers, lenders, and other program partners of any revisions made to the PJ’s resale restrictions.
  2. Seek HUD approval, as specified at §92.254(a)(5).

Effective Date

August 23, 2013

Recapture Provisions: Assumption of Recapture Obligations by Subsequent Homebuyer

§92.254(a)(5)(ii) is revised to permit a subsequent low-income purchaser of a HOME-assisted homeownership unit to assume the existing HOME loan and recapture obligation entered into by the original buyer when no additional HOME assistance is provided to the subsequent homebuyer.

In cases in which the subsequent homebuyer needs HOME assistance in excess of the balance of the original HOME loan, the HOME subsidy (the direct subsidy as described in §92.254) to the original homebuyer must be recaptured. A separate HOME subsidy must be provided to the new homebuyer, and a new affordability period must be established based on that assistance to the buyer.
No other changes have been made to the regulatory requirements related to recapture provisions.

Suggested Next Steps for PJs

  1. Determine if the PJ will change its policies to incorporate this new provision and revise recapture provisions, if needed, to make this policy clear.

  2. Notify staff, State recipients, subrecipients, contractors, project developers, lenders, and other program partners of this clarification.

Effective Date

August 23, 2013

Exceptions to Qualification as Homeowner for Homeowner Rehabilitation Programs

When a PJ provides rehabilitation assistance to an existing homeowner, the housing must meet the definition of “homeownership” at §92.2. §92.254(c) is amended to permit the PJ to provide rehabilitation assistance in four additional situations:

  • Inherited property with multiple owners. This provision is for housing for which title has passed, by inheritance, to several heirs, not all of whom reside in the housing. This most often occurs when siblings inherit a family home that is occupied by one sibling. The PJ is able to provide rehabilitation assistance to the owner-occupant when he/she: (1) is low-income, (2) occupies the housing as his or her principal residence, and (3) pays all the costs associated with ownership and maintenance of the housing (e.g., mortgage, taxes, insurance, utilities).

  • Life estate.Under a life estate, the occupant of the property has the right to live in the housing for the remainder of his or her life and does not pay rent. This might be a situation where a disabled adult occupies a dwelling owned by another family member under a life estate, or in which a deceased spouse leaves a property to the children of a previous marriage but permits the other spouse to occupy the property for the remainder of his or her life. PJs are permitted to provide rehabilitation assistance to the person holding the life estate, provided the person is low-income and occupies the housing as his or her principal residence.

  • Inter vivos trust, also known as a living trust. A living trust is created when the owner of property conveys his or her property to a trust for his or her own benefit or for that of a third party (the beneficiaries). The trust holds legal title and the beneficiary holds equitable title. The trustee is under a fiduciary responsibility to hold and manage the trust assets for the beneficiary. This is a common estate planning tool. The regulation is revised to permit PJs to provide rehabilitation assistance to a property if all beneficiaries of the trust qualify as a low-income family and occupy the property as their principal residence. The contingent beneficiaries, who receive no benefit from the trust and have no control over the trust assets until the beneficiary is deceased, need not be low-income. The trust must be valid and enforceable and must ensure that each beneficiary has the legal right to occupy the property for the remainder of his or her life.

  • Beneficiary deed. A beneficiary deed conveys an interest in real property, including any debt secured by a lien on real property, to a grantee beneficiary designated by the owner and that expressly states that the deed is effective on the death of the owner. Upon the death of the owner, the grantee beneficiary receives ownership in the property, subject to all conveyances, assignments, contracts, mortgages, deeds of trust, liens, security pledges, and other encumbrances made by the owner or to which the owner was subject during the owner’s lifetime. The PJ may assist the owner if he or she qualifies as low-income and occupies the property as his or her principal residence.

In these situations, the PJ has the right to establish the terms of assistance.

Suggested Next Steps for PJs

  1. Determine whether the PJ will opt to expand its definition of applicable homeowners for its homeowner rehabilitation programs.

  2. If yes, revise homeowner rehabilitation program guidelines to include these permissible forms of ownership interest.

  3. Determine what type of documentation (such as a title search) the applicant will need to provide to demonstrate these types of ownership interest. Specify this in program materials and application forms.

Effective Date

August 23, 2013

Providing HOME Homeownership Assistance through Lenders

A new provision is included at §92.254(e) to govern situations in which HOME homeownership assistance (e.g., downpayment assistance) is provided through a nonprofit or for-profit entity that also provides first mortgage financing to the homebuyer. There is an inherent conflict in this situation, since the first mortgage lender may have an incentive to provide assistance to buyers. This might jeopardize the lender’s objectivity in assessing the qualifications of the buyer or the eligibility of a property.

The new provision imposes several safeguards in these situations:

  • The assistance may be provided only as specified in a written agreement between the PJ and the lender. This agreement must specify the forms, amounts, and any conditions of homeownership assistance that the lender is authorized to provide.

  • Before any HOME assistance is provided, the PJ must verify that the family is eligible for HOME assistance (low-income) and must inspect the housing for compliance with applicable property standards in §92.251.

  • The for-profit or nonprofit organizations are not permitted to charge fees (such as origination fees or points) to the family for the HOME homeownership assistance that the organization provides. (Reasonable administrative costs may be charged to the HOME program as a project cost.)

This provision also addresses situations whereby a PJ contracts with a for-profit or nonprofit lender to make eligibility determinations, but another entity (the PJ or otherwise) is providing the HOME financial assistance. In these situations, items 2 and 3 apply. It is in the public interest to include these safeguards because these organizations earn fees for originating non-HOME mortgages to borrowers also receiving HOME funds.

Suggested Next Steps for PJs

  1. If the PJ has programs in which it provides HOME homeownership assistance (e.g., downpayment assistance) through a nonprofit or for-profit entity that also provides first mortgage financing to the homebuyer, be sure that these safeguards are put into place. Modifications to the written agreements or memoranda of agreements with these entities may be necessary.

  2. Notify monitoring staff of the requirements, and incorporate these safeguards on monitoring checklists to ensure compliance is reviewed during program monitoring.

Effective Date

August 23, 2013

Sustainable Homeownership Program Design

New requirements are imposed on PJs administering homebuyer assistance programs to strengthen program design and administration. The 2013 Rule adds a new paragraph §92.254(f) that requires PJs to have and follow written policies for:

  • Underwriting. Underwriting standards for homeownership assistance must address housing debt, overall household debt, the appropriateness of the amount of assistance, recurring household expenses, assets available to acquire the housing, monthly expenses of the household, and financial resources available to the household to sustain homeownership.

  • Predatory lending. The PJ must have a policy to protect against predatory lending. Recent rulemaking by the Consumer Financial Protection Bureau (CFPB) resulted in guidelines about how federal agencies that insure or guarantee mortgages evaluate a buyer’s ability to repay a mortgage. These guidelines are not specific to low-income borrowers and their ability to sustain a mortgage. HUD will issue guidance on preventing predatory lending that explains the CFPB ability-to-pay principles and will suggest additional considerations that would be appropriate to include in an anti-predatory lending policy applicable to low-income homebuyers.

  • Refinancing. The refinancing policy must address refinancing loans to which HOME loans are subordinated to ensure that the terms of the new loan are reasonable.

Suggested Next Steps for PJs

  1. If administering homebuyer assistance programs, review current policies and procedures and revise them, as needed, to address underwriting standards for homebuyers, protections for buyers against predatory lending, and refinancing policies.

  2. Provide written notification to staff and program partners of the new policies and procedures.

  3. Incorporate underwriting requirements into applications and other materials for homebuyers to ensure that the required information is collected from potential buyers in order to evaluate their creditworthiness and to ensure that they understand the requirements.

  4. Work with housing counseling agencies, as appropriate, to ensure they understand the PJ’s underwriting criteria and policies.

  5. Notify monitoring staff of these requirements, and incorporate the requirements on monitoring checklists to ensure compliance review during project monitoring process.

  6. Incorporate the homebuyer program policies and procedures in written agreements with State recipients; subrecipients; and project owners, developers, and sponsors, in accordance with §92.504(c), as appropriate.

Effective Date

 January 24, 2014 (six months following the publication of the Final Rule)

§92.255 Converting Rental Units to Homeownership Units for Existing Tenants

The pre-2013 Rule, at §92.255, permits rental units to be converted to homeownership units for existing tenants. This provision was intended to facilitate efforts of in-place tenants to purchase the rental unit in which they reside. In some instances, owners or PJs have pursued the conversion of an entire HOME-assisted multifamily rental project to condominium ownership during the period of affordability. The 2013 Rule revises this section to make clear that the refusal of a tenant to purchase the housing does not constitute grounds for eviction.

This section is further revised to specify that if no additional HOME funds are used to enable a tenant to purchase the unit, the minimum period of affordability is equal to the remainder of the affordability period if the property had remained rental property. If additional assistance is provided to assist the tenant/new homeowner, then the affordability period is based on the amount of direct homeownership assistance provided, in accordance with §92.254(a)(4).

Suggested Next Steps for PJs

  1. Include this requirement in written agreements with owners, developers, and sponsors of rental housing.

  2. In situations where an owner is converting a project to homeownership, require owners to inform tenants of their right to not be evicted in the event of a conversion of the property. Further, require owners to explain to tenants the HOME requirements that will apply to them should they purchase the unit (principal residency requirement, the PJ’s resale or recapture provisions, remaining affordability period).

  3. Should the tenant choose to purchase the unit, and if additional HOME funds will be invested to assist the tenant to make the purchase, execute a written agreement with the tenant that imposes the HOME requirements and specifies the affordability period (based on the direct homeownership assistance provided).

Effective Date

August 23, 2013

§92.257 Faith-Based Organizations

The provisions at §92.257 that govern the use of HOME funds by faith-based organizations have been revised to conform to 24 CFR 5.09 which provides guidance in this area for all HUD programs. Substantively, these changes do not reflect new policy or requirements under the HOME program.

Suggested Next Steps for PJs

  1. In the project or subrecipient selection process, be sure that faith-based organizations receive equal consideration. State this policy in project solicitations (i.e., Requests for Proposals).

  2. When funding faith-based organizations, clarify in the written agreement that HOME funds and activities must be separate (in terms of time and location) from explicitly religious activities.

  3. Notify monitoring staff of these requirements, and incorporate into monitoring guidance and checklists to ensure compliance review.

Effective Date:

August 23, 2013

Back to top